Farley promises to amend check casher loans

Sen. Hugh Farley drew quite an uproar from responsible lending advocates like the AARP and NEDAP, the Neighborhood Economic Development Advocacy Project, when he advanced a bill through the Senate Banking Committee that would allow check cashers to offer short-term loans to their customers, most of whom live in low-income neighborhoods.

The groups said this was akin to PayDay lending, in which people are given an advance on the money in their paycheck — usually of one or two weeks — in exchange for a fee. It doesn’t seem like a lot, say $10 out of a $500 paycheck, for example, but it rises to a usurious percentage when taken on an annual basis. PayDay loans are illegal in New York.

“The check cashers claim that New Yorkers desperately need these loans. But they conveniently leave out the fact that the bill entails a carve-out of the state’s usury laws, and would enable them to make loans without even determining borrower’ ability to repay,” said Sarah Ludwig, co-director of NEDAP. “The fact that many New Yorkers are struggling to make ends meet does not justify the legalization of exploitative lending practices.”

Under Farley’s bill, interest rates would by the head of the new Department of Financial Services. As written, he “shall” consider interest rates for similar loans in other states and what might make the loans profitable. Ludwig said this would lead to triple-digit annualized rates.

Farley said the bill would be amended.

“That was put in by the people that want the bill to give the superintendent some direction,” he said. “They’re talking about payday loans. This is not the same thing.”

He also defended the legislation’s intent as providing credit to people who otherwise could not get it.

“In these areas, particularly in New York City, there are no financial institutions, banks, or anything else in these poor areas. Check cashers provide like a financial oasis. This would allow people to get a small loan for three or six months,” he said.